A September Commission Order modifying a number of Commission Rules regarding filing and review of foreign ownership in broadcast licensees has now been published in the Federal Register, setting the effective date of at least some of these changes.  Many of those rule changes will now go into effect January 30, although some changes regarding “information collections” (i.e. filings with the Commission) still require further OMB approval.

The rule changes adopted in the Order were designed to accomplish two main purposes: 1) to allow broadcast licensees to take advantage of streamlined waiver procedures long enjoyed by common carrier licensees requesting approval for foreign ownership in excess of the statutory limits; and 2) reforming the methods a licensee (whether broadcast, common carrier, or aeronautical) may use to determine its foreign ownership for purposes of certifying compliance with the limits.

The Commission has long waived, on a case-by-case basis, the statutory limits on foreign ownership in common carrier licensees, allowing such entities to exceed the 20% direct and 25% indirect statutory benchmarks. Such waivers have been based on a number of criteria, including the nationality of the proposed foreign owners, continued management of day-to-day operations by U.S. citizens, demonstrated need for foreign investment, and others.  Prior to the last few years, however, waivers were not available to broadcast licensees, which were for all intents and purposes strictly bound by the statutory limits.

Since around 2013, the Commission has gradually begun to loosen those restrictions for broadcasters as well, first by “clarifying” in 2013 that it would conduct case-by-case review of proposals by broadcast licensees for approval of increased indirect foreign ownership (for somewhat arcane administrative law reasons, direct foreign ownership of a broadcast licensee is not be subject to such waiver). In 2015, the Commission approved a request by traditionally Internet-based music service Pandora to purchase a terrestrial radio station in North Dakota.  Pandora had requested (and ultimately received) a waiver of the 25% indirect foreign ownership limit because, while it believed it complied with that limit, it could not prove compliance due to the difficulty of determining the citizenship of all of its stockholders.

At the same time as the Commission was relaxing (a bit) the indirect foreign ownership limit for broadcasters, it was also formalizing and streamlining the procedures for common carrier licensees to request waiver, codifying the showings that would be required to obtain approval of increased foreign ownership. The Commission’s newly adopted rules now apply those procedures, with a few broadcast-specific modification, to broadcast ownership as well.  As noted above, for broadcasters, only the 25% indirect ownership limit can be waived, not the 20% direct ownership limit.  As “information collections,” it is also worth noting that these changes will not formally become effective until OMB has also signed off.

A second problem that the Commission has increasingly dealt with (as demonstrated in the Pandora case referenced above) is that it is often very difficult for a licensee to determine the citizenship (or even identity) of enough of its shareholders to confirm that its foreign ownership levels comply with the statutory limits. This problem is particularly acute for publicly-traded companies with widely-held stock, which is often held in the name of third parties, such as banks and brokers.

The newly-effective Commission rules should make the process of determining compliance less burdensome for US-organized, publicly-traded, companies in the ownership chain of a Commission licensee. Such entities may now rely on information as to shareholder citizenship that is “known or should be known” to them in certifying compliance with the foreign ownership caps.  Under the new “known or should be known” standard, companies will be expected to review citizenship and ownership information through SEC filings and other widely-available sources, such as news reports.  Companies will also be expected to review other sources of “reliable information,” such as court filings and other information submitted to the company itself, as well as information available from third-party commercial entities that compile and distribute such information on publicly traded companies.  While companies need not affirmatively report the results of such investigations to the Commission (although they must underlie any certification of compliance included in an application) the Commission expects that licensees will continually monitor their foreign ownership levels.  If such monitoring uncovers any excessive foreign ownership, the Commission has also now adopted remedial procedures providing licensees with a period of time to fix the problem or request waiver of the rules.

The above is only a broad overview of the changes that will soon be going into effect regarding foreign ownership compliance. If you have questions about the new rules, or their application to specific issues or situations, we are here to help.